Have you considered converting a pre-tax retirement account into a Roth account as you approach retirement?

Converting pre-tax retirement accounts such as IRAs to after-tax Roth IRAs could allow you to keep growing funds tax-free and then make withdrawals in retirement without paying taxes.

Is this the right retirement savings strategy for you? To find out, it could be a good idea to speak with a financial advisor.

Consulting a fiduciary financial advisor can be a great first step to weighing a Roth conversion, the potential tax repercussions, and how it could fit into your overall retirement plan. That's why we created a free tool to help match you with up to three financial advisors.

Click here to take our quick retirement quiz and get matched with vetted advisors in just a few minutes, each obligated to work in your best interest.

Research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.¹

A 2022 Northwestern Mutual study found that 62% of U.S. adults admit their financial planning needs improvement. However, only 35% of Americans work with a financial advisor.²

Roth IRA Conversion Basics

The difference between a Roth IRA and other types of IRAs is that the Roth account is funded with after-tax dollars. That means you pay taxes on funds before contributing them to the Roth, and you can’t deduct contributions from your taxable income.

However, the money in the Roth account grows tax-free and you can withdraw funds after you retire without paying taxes.

You can convert funds in pre-tax IRA accounts to a Roth IRA. This includes traditional IRAs, SEP IRAs and Simple IRAs.

When you convert pre-tax money in a regular IRA to a Roth IRA, you have to pay taxes on it at your current rate. The conversion amount is treated as regular income, which can bump you into a higher tax bracket and cause a high tax bill for the conversion year.

Is a Roth IRA Conversion Worth It?

Despite the tax bill, a Roth IRA conversion can be worth it for a couple of reasons.

First, it can get around the income caps that limit Roth conversions for higher-income taxpayers. Most taxpayers can contribute up to $6,500 ($7,500 if you're age 50 or older), according to the IRS. But contribution limits are lower for higher-income taxpayers and, after a point, no Roth contributions are allowed at all.

There are no limits on conversions, though. A taxpayer with a pre-tax IRA can convert any amount of funds in a year to a Roth IRA.

Roth IRAs also are exempt from required minimum distributions (RMDs). These mandatory withdrawals from retirement accounts begin at age 73 and can create a tax burden on affluent retirees. But Roth owners don’t have to take RMDs for as long as they live, making Roth IRAs particularly useful for leaving inheritances.

Again, it’s important to consider your unique circumstances and how a Roth conversion could affect your retirement, which is why it could be important to speak with a fiduciary financial advisor before moving forward. Click here to get matched with up to three advisors who serve your area in just a few minutes.

Drawbacks to IRA Conversions

Having to pay a large chunk of taxes today is the big disincentive to Roth conversion.
Another potential drawback is Roth accounts have to be open for five years to avoid paying taxes on withdrawals. After age 59.5, withdrawals aren’t subject to a 10% penalty that can be levied on early withdrawals. But the income taxes are still due.

Roth IRA conversions aren’t recommended for all savers. Many retirees could have lower incomes than when they were working and it could potentially be better to use a regular IRA and pay taxes when withdrawing funds.

Finally, the process of converting a regular IRA to a Roth IRA can’t be undone. A taxpayer who is not certain post-retirement income taxes will be lower than they are today might want to think twice about a conversion.

What to Consider Before a Roth Conversion

Deciding whether or not to convert regular IRA assets to a Roth IRA calls for careful evaluation of your financial and tax situation. That’s where a financial advisor can be invaluable.

But how do you find a vetted fiduciary financial advisor, obligated to work in your best interest?
This is the biggest hurdle for many. With thousands of daily Google searches for "Fiduciary financial advisors near me," "best fiduciary financial advisor," and "financial investment advisors near me," the hunt for a vetted fiduciary advisor can feel like a wild goose chase.

But it doesn't have to be. And thankfully, it really isn't.

Our free matching quiz links Americans with up to three fiduciary financial advisors who serve their area so they can evaluate and choose the one who fits their needs.

SmartAsset has matched thousands of people with financial advisors. Advisors are rigorously vetted through our proprietary due diligence process. We only match with fiduciaries, so all of your financial advisor matches are legally committed to acting in your best interest.

Our advisor matching service is at no cost to you and there is no obligation to work with any of your advisor matches. You're in control.

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